S&P 500, Dow close in correction territory as stocks suffer bloodbath

Editors note: A prior version of this report incorrectly calculated the Dow’s decline from all-time highs. The report has been corrected.

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The S&P 500 and the Dow extended their decline to close in correction territory Thursday after stocks went into a free fall late in the session on concerns about mounting volatility and worries about inflation and rising bond yields.

While inflation concerns and rising rates are often described as the catalyst for the selloff, analysts have also noted that equities were due for a pullback after scoring big gains in January and throughout 2017. A correction is usually defined as a pullback from a recent peak of at least 10%.

What are the main benchmarks doing?

The Dow Jones Industrial Average
DJIA, +0.08%
slumped 1,032.89 points, or 4.2%, to close at 23,860.46, its second worst point decline in history, leaving it 10.4% off its record close from Jan. 26. The S&P 500 index
SPX, +0.04%
skidded 100.66 points, or 3.8%, to 2,581, weighed by financial and technology stocks. It’s down 10.2% from its all-time high.

The Nasdaq Composite Index
COMP, -0.23%
sank 274.82 points, or 3.9%, to end at 6,777.16.

William Delwiche, an investment strategist at Robert W. Baird & Co., predicted volatility to continue plaguing the market given the upward pressure on bond yields and that the stock market is not likely to stabilize until breadth improves and investors’ optimism dissipates.

”It is not uncommon for markets to be topsy-turvy after a recent severe selloff. Traders are still testing the water and they are half expecting another sudden selloff,” said David Madden, a market analyst at CMC Markets, in a note. “Investors love to pick up cheap stocks, but when they fear another sharp decline is on the horizon their default position can be to look to so-called safe haven assets like gold and bonds.”

What’s driving markets?

Political worries might pressure the market somewhat, as a partial shutdown of the federal government lies ahead if lawmakers don’t agree on spending measures by midnight.

Senate Majority Leader Mitch McConnell and Senate Minority Leader Chuck Schumer unveiled an agreement Wednesday. The deal faces a bumpy path in the House, where Republicans will need Democrats’ help to pass it, since conservatives will likely object to a big increase in government spending.

What’s on the economic docket?

Initial U.S. jobless claims fell by 9,000 to 221,000 in the seven days ended Feb 3. Economists surveyed by MarketWatch forecast a 235,000 reading.

The correction in financial markets is healthy and is unlikely to hurt financial conditions or the broader U.S. economy, Dallas Federal Reserve President Robert Kaplan said early Thursday at an event in Germany.

Minneapolis Fed President Neel Kashkari said the Federal Reserve is “a long way away” from having to raise interest rates due to higher inflation on the back of higher labor costs. Speaking at a moderated discussion in Pierre, South Dakota, Kashkari said the January jobs report, which was blamed for the stock market selloff, was actually only “mixed” in terms of wage growth.

Kansas City Fed President Esther George is due to give a speech on the economic outlook to a business group in Wichita, Kan., at 9 p.m. Eastern.

Rice Krispies producer Kellogg Co.K, -0.23%
reported fourth-quarter net income of $428.0 million, or $1.23 per share, compared with a loss of$53.0 million, or 15 cents per share, for the same period last year. Its shares were up 2.8%.

Yum China Holdings Inc.YUMC, +0.37%
shares were down 7.5% after the company reported a fourth-quarter loss related to a one-time charge related to the U.S. tax cuts.

Teva Pharmaceutical Industries Ltd. shares
TEVA, +0.43%plummeted by 11% after the company reported fourth-quarter profit and revenue beats but provided 2018 guidance that fell well short of expectations.

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